Russia abrogates tax agreement with Cyprus
On August 3, Russian Federation Ministry of Finance announced the initiation of the termination of the Double Taxation Avoidance Agreement between Cyprus and Russia.
Earlier, Cyprus was asked to make changes to the DTAA in terms of increasing to 15% the tax rate withheld from dividends and interest at the source of payment.
During the negotiations, Cyprus put forward its proposals, which did not suit the Russian Ministry of Finance, because "in fact, they blur and make unattainable the expected effect of the measures taken by the Russian side to support the national economy and social programs. As well as they contribute to the tax-free withdrawal of significant financial resources of Russian origin from the territory of the Russian Federation through the Cypriot jurisdiction".
Consequences of termination
According to the current agreement with Cyprus, tax on payments of dividends from Russia in favor of Cypriot recipients is withheld at a preferential rate of 5 or 10%. Interest payments on loans are not taxed at all (0% rate).
After the termination of the DTAA, all payments (dividends, interest, royalties) in favor of Cyprus residents will be taxed in accordance with Russian tax legislation. At the rate of 15% for dividends and 20% for interest on loans and royalties.